Step-by-Step Guide to Filing ADT-2 Form for Auditor Removal

Overview : The removal of an auditor before completion of his term in a company is a significant compliance matter under the Companies Act, 2013. Companies willing to remove an auditor must adhere to the predefined legal process to ensure that the due procedures are adhered to while filing the ADT-2 form. It is a crucial compliance requirement that must be followed by the companies. In this blog, we'll discuss the detailed procedure covering all legal and procedural aspects so that companies can ensure compliance with the regulations set by the Ministry of Corporate Affairs (MCA).

Auditors play a critical role in maintaining financial transparency and regulatory compliance within a company. However, situations may arise where a company needs to remove an auditor before their term ends. Such removal can only be done under valid circumstances and must be approved by the company's Board of Directors, shareholders, and ultimately the Regional Director (RD) of the MCA.

According to Section 140 (1) of the Companies Act, 2013, it's mandatory for the shareholders to pass a special resolution and also obtain approval from the Central Government by filing of ADT-2 with the Registrar of Companies (ROC). If companies fail to comply with this process, it can attract penalties and even other legal consequences. The blog helps you explore the detailed procedure of auditor removal from a company through filing ADT-2.

Step-by-Step Process for Filing ADT-2

Step 1 : Identify the Grounds for Removal

Before going for the removal process, the company must establish legitimate grounds for removing the auditor. Common reasons include:

• Professional misconduct or violation of ethical standards.
• Loss of trust or confidence in the auditor’s abilities.
• Non-cooperation or failure to perform auditing duties effectively.
• Conflict of interest with the company’s business.
• Disqualification under Section 141 of the Companies Act, 2013.

The reasons must be clearly drafted, as the auditor has the right to be heard before their removal is finalized.

Step 2 : Convene a Board Meeting

A company is required to convene a Board of Directors meeting for the discussion and approval of the proposal for auditor removal. The following steps should be followed:

• Issue a notice for a Board meeting in compliance with Section 173 of the Companies Act, 2013.
• Conduct the Board meeting and present the reasons for removing the auditor.
• Pass a Board Resolution approving the removal and authorizing a company representative to file ADT-2.
• Schedule an Extraordinary General Meeting (EGM) to obtain shareholder approval.

Board meeting minutes should be carefully documented, as they will be required for compliance and future reference.

Step 3 : Issue a Notice for the Extraordinary General Meeting (EGM)

Once the Board of Directors has approved the removal, the company is required to call an EGM for shareholders to vote on the decision.

• The notice for the EGM should be sent at least 21 days in advance to all shareholders.
• The notice must include the agenda, the rationale behind the removal, and a copy of the Board resolution.
• The auditor being removed must be given a chance to present their case before the shareholders.
• A Special Resolution (with at least 75% majority approval) must be passed to proceed with the removal.

Step 4 : File ADT-2 with ROC

After obtaining shareholder approval, the company must file ADT-2 with the Registrar of Companies (ROC) within 30 days of passing the special resolution. The following steps should be followed:

• Download ADT-2 Form from the MCA portal.
• Fill in the required details, including:
  • Name, CIN, and registered address of the company.
  • Details of the auditor, including their name, firm details, and tenure.
  • The reason for removal as approved by the Board and shareholders.
  • Details of the special resolution passed in the EGM.

• Attach supporting documents, including:
  • Board resolution approving the removal.
  • Special resolution passed in the EGM.
  • Statement of reasons for the removal.
  • Any relevant correspondence with the auditor.

• Pay the prescribed fee as per the Companies (Registration Offices and Fees) Rules, 2014.
• Submit the form online via the official MCA portal.

Upon filing of ADT-2, the application is reviewed by the ROC and forwarded to the Regional Director (RD) for further approval.

Step 5: Obtain Regional Director’s Approval

The Regional Director (RD) of MCA has authorisation to grant approval for the removal of the auditor. The process mainly includes;

• A detailed review of the application and supporting documents.
• Verification of compliance with statutory requirements.
• Granting an opportunity to the auditor to present their case.
• If necessary, a hearing may be scheduled to allow both parties to present their arguments.
• If satisfied, the RD grants approval; otherwise, the application may be rejected or require further clarifications.

Step 6: Notify the Auditor and Complete the Removal Process

After acquiring Regional Director's approval, the company must formally notify the auditor that he will be removed even before their term expiration. This intimation must be carried out in written form and should also include;

• Copy of Approval from Regional Director (RD)
• Official Notice terminating Auditor's Appointment
• Any Necessary Settlement of Fees and Handover of Documents

Step 7: Appoint a New Auditor

In order to maintain continuity in compliance and auditing processes, the company must appoint a new auditor promptly.

• File ADT-1 to inform the ROC about the new auditor’s appointment.
• Obtain the auditor’s consent letter and ensure they meet the eligibility criteria under Section 141 of the Companies Act, 2013.
• Conduct a Board meeting to finalize the appointment.

Conclusion

By following the step-by-step process of auditor removal outlined in this article, companies can navigate the process smoothly and avoid potential legal complications. If this process is executed properly as explained above, this ensures corporate governance standards are maintained and financial compliance is upheld. For seamless online filing, companies should ensure that their MCA portal credentials are up to date, and all required documents are prepared in advance to avoid delays in the approval process.

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Editorial Team | in

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.